Save SA’s sugar industry (and the million livelihoods that depend on it)
Glucose is often the first painkiller given to newborns, but how do you treat South Africa’s seriously ill sugar industry?
In two decades, the country’s annual sugar production has fallen by almost 25%, from 2.75 million to 2.1 million tonnes. Over the same period, we have lost nearly 60% of our sugar cane growers, and other jobs in the sugar industry are estimated to have declined by 45%.
As in the rest of the world, health issues and modern lifestyles are causing demand for sugar to stagnate. Demand for sugar in the Southern African Customs Union has increased from 1.65 million tonnes to 1.25 million tonnes per year, forcing South Africa to increase its exports to the world market, where prices are lower than the local production cost. With increased exports, the industry now has to absorb losses of around R2 billion a year.
Moreover, the pace of decadence is accelerating. In 2020, two local sugar mills closed within weeks of each other and the sector is bleeding jobs.
This is the reality that Trix Trikam, Executive Director of the South African Sugar Association (SASA), and the rest of the sugar industry face on a daily basis.
The situation is conditioned by three main factors:
- Distorted world prices
These prices, which are below South Africa’s cost of production, are determined by sales of surpluses from various markets, particularly India, where surplus production and prices are a function of export incentives. and extensive grant programs.
- Eswatini’s Competitive Advantage
Eswatini lost its preferential export quotas from the EU in September 2017. Subsequently, the duty-free access to the South African market and the relative cost advantage that producers there have enjoyed over to their South African competitors have enabled them to set the price of their sugar below that of local producers and thus take a significant share. According to the US Department of Agriculture, Eswatini exported 331,273 t of sugar to South Africa during the 2020/21 marketing season.
- The “sugar tax”
The government introduced the Health Promotion Levy (HPL), a tax on sugary drinks, in April 2018. [sugar] the industry is experiencing a loss of at least R1.2 billion in revenue,” says Trikam. A total of 9,000 farmers and farm workers lost their jobs that year, according to Sifiso Mhlaba, SASA’s national market manager. At the same time, 558 jobs were lost in the sugar processing industry, which includes milling and refining.
“The latest figures suggest that South Africa has lost around 16,000 jobs in total since the introduction of HPL,” Mhlaba told a group of reporters during a recent SASA* media tour.
To make matters worse, the industry was hit hard by civil unrest earlier this year in KwaZulu-Natal. During this week, according to Trikam, the shutdown of production at 10 factories cost the industry R100 million. In addition, 2,580 t of sugar were stolen during the looting of two warehouses and more than 500,000 ha of sugar cane were destroyed by arsonists.
A global challenge
Mhlaba explains that HPL is only part of the industry headache. “The entire world sugar market is distorted to the point that prices no longer reflect the cost of producing sugar.”
As a result, Trikam adds, the US$680/t (about R10,400/t) tariff paid on exported sugar has proven insufficient to deter other countries from selling their product in the South African market. .
In 2020, South Africa exported 800,000t of sugar at a loss. The only export capable of attracting a value close to that of the local market was the 23,000 tons of sugar exported to the United States duty-free, according to Geran Ranganthan, export manager at SASA.
The prerequisite for deregulation is a free market, he points out, but that is something the international cane industry is certainly not; on the contrary, it is plagued by government interference.
“The global sugar export market is a dumping market. Essentially, each sugar-exporting country does so at a loss, because producers can earn more in their own country than they would on the world market.
During the previous season (April 2020 to March 2021), the average world price of exported sugar was between USD 200/t and USD 300/t (about R3,050/t to R4,500/t), according to Ranganthan . This was less than what sugar growers in any country could get in their own country. However, in India, for example, the government paid sugar producers an export subsidy of $120/t (R1,830/t).
“It leveled the playing field only for Indian growers because they were suddenly able to sell sugar globally at roughly the same price they were receiving locally.”
On the demand side, he adds, there has been a general decline around the world this season, as China and other large consumers in the Far East stockpiled sugar when prices were low.
The fundamental dynamics of the industry are also changing, with consumers becoming more health conscious and thus limiting their sugar intake.
This has led world leaders such as Brazil and India to develop their bioethanol industries because it is relatively easy to switch from sugar for human consumption to sugar for fuel production.
An apathetic attitude towards the state of the sugar industry is not an option, Trikam points out, “because a million rural South Africans depend on it for their livelihoods”. He adds that the industry directly employs 65,000 people, has 21,776 cane growers on its roster and indirectly employs 270,000 people.
The annual turnover of the sugarcane industry is R18 billion. Although it contributes only 0.84% of South Africa’s total GDP and 6% of the country’s total agricultural output, the sector is vital to the economies of Mpumalanga and KwaZulu-Natal.
“Sugar cane is the biggest contributor to agricultural GDP in KwaZulu-Natal (44% in 2016) and second in Mpumalanga (40% in the same year),” says Mhlaba.
Trikam warns that if the industry were to fail, “many South African rural towns and villages would collapse, as they are partially or entirely dependent on the sugar industry for their survival”. Even Durban would suffer.
So why not just deregulate the industry? For Trikam, it would be a disaster: “There may be those who believe that deregulation will lower the price of sugar, but that is nonsense. Jobs will be lost if the sugar cane industry is deregulated. This will have a massive socio-economic impact.
In his view, the government also recognizes that deregulation is misguided.
New ways to save the sector
Essentially, the South African sugar industry is stuck. Deregulation would mean its derailment, so government assistance is needed. And this is where the sugarcane value chain master plan comes in.
“The industry is currently in intensive care and we are trying to stabilize its decline before moving it to general service where we can start to develop it again,” says Trikam.
The future will see the industry face either uncontrolled decline, controlled contraction, or restructuring and diversification in order to grow. The last of these is the most appealing to all parties involved, says Trikam.
“The industry has entered into public and private partnerships in order to restructure and find alternative uses for sugar.”
Mhlaba says the government and the private sector have also pledged to defend South African sugar rather than imported products, and this case has been given the green light by competition authorities.
“The 2020/21 production year was the first full season of the master plan,” he says.
“Although there is a bit of debate surrounding the impact of COVID-19, we can already see that local sugar sales have increased. Between 2019 and 2021, there was a 40% increase in local sales at the retail level, and direct sales [to the public] increased by 32%.
SASA has also seen growth in the industrial market, where sectors buy sugar to produce other products such as soft drinks.
Regarding sugar taxation, the government has promised the industry that it will keep the HPL constant for the next three years. The HPL is currently set at 2.1c/g sugar content which exceeds 4g/100mℓ. The first 4g/100mℓ are not sampled.
Meanwhile, industry experts frequently talk with the Industrial Development Corporation to find viable alternative uses for sugar cane. Those identified so far are:
- Bioethanol for fuel blending (subject to a viable business model);
- Biojet fuel;
- Drinking, industrial and pharmaceutical grade bioethanol;
- Cogenerated biomass/electricity;
- Free and low kilojoule sweeteners; and
- Specialty chemicals and bio-based polymers for use in various industries, such as plastics, packaging, engine manufacturing and textiles.
Email the South African Sugar Association at [email protected]or visit sasa.org.za.
*All media tour costs were paid for by SASA.